chapter-4 analysis of financial efficiency 4.1 concept of

A Study of Productivity and Financial Efficiency of Textile Industry of India

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CHAPTER-4

ANALYSIS OF FINANCIAL EFFICIENCY

4.1 Concept of Efficiency and Performance

The word efficiency as defined by the Oxford dictionary states that:

"Efficiency is the accomplishment of or the ability to

accomplish a job with minimum expenditure of time and effort".1

It refers to the internal process that leads to output. It focuses on

the means to achieve the desired end. As expressed by Peter Drucker

"Doing the things the right way is Efficiency." This denotes the

fulfillment of the objective with minimum sacrifice of the available scarce

resource.

Fatless and speedy compliance to the process or system procedure is

a measure of efficiency. Providing a specified volume and quality of

service with the lowest level of resources capable of meeting that

specification, performance measures and or indicators are required. These

include measures of productivity, unit o volume of service etc. These

measures help in minimizing of the resources in achieving the

organizational objectives i.e., things rightly.

Performance is the execution or accomplishment of work feats etc.

or a particular, action, deed or proceeding is refers as performance.2

However, the manner in which or the efficiency with which something


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reacts or fulfils its intended purpose is defined as performance.

Performance may thus, mean different things to different businesses.

Success or failure in the economic sense is judged in relation to

expectations, return on invested capital and the objective of the

business concern.

In understanding the term performance, a clear distinction needs to

be drawn between Performance Measures and Performance Indicators.

Performance measures need to be based on cat evaluation of the causes

and effects of policy intervention whereas a performance indicator is less

precise and usually provides only intermediate measure of achievement.

4.2 Financial Performance

Financial Performance is the blue print of the financial affairs

of a concern and reveals how a business has prospered under the

leadership of its management personnel performance of any

organization can always be judged in the lights of light of its

objectives and the main objective of a bank is to earn profit and to

enlarge profit by making the most efficient use of the resources

available to them. The Indian Public Sector did run with the object

of maximizing profits. They were making due contribution towards

the fulfillment of socio-economic objectives lay down by the

government and SEBI.


117

The financial performance of companies could be analyzed by a

composite index of not only quantifiable selected trends and ratios, an

analysis of the financial statements, a study of the cash flow and the

fund flow statements etc. but also qualitative factors like operational

efficiency and effectiveness and socio-economic development of the

country.

4.3 Financial Efficiency

Financial Efficiency is a measure of the organization’s ability to

translate its financial resources into mission related activities. Financial

Efficiency is desirable in all organizations regardless of individual

mission or structure.2 It measures the intensity with which a business

uses its assets to generate gross revenues and the effectiveness of

producing, purchasing, pricing, financing and marketing decisions.

At the micro level, Financial Efficiency refers to the efficiency

with which resources are correctly allocated among competing uses at a

point of time.3

Financial Efficiency is a measure of how well an

organization has managed certain trade offs (risk and return, liquidity and

profitability) in the use of its financial resources.4

Financial Efficiency is regarded efficiency and is a management

guide to greater efficiency the extent of profitability, productivity,


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liquidity and capital strength can be taken as a final proof of financial

efficiency.

It is interesting to note that sometimes, even sufficient profits can

mask inefficiency and conversely, a good degree financial efficiency

could be dressed with the absence & profit.

4.4 Operational Efficiency

Operational Efficiency of an organization is the ability utilizes its

available resources to the maximum extent Operational Efficiency

can be judged in the light of financial efficiency. It can be said that

neither profitability ratios turnover ratios by themselves provide

good indicators measure operational efficiency.

Operational Efficiency of a bank is associated with diverse

aspects such as operational cost effectiveness profitability,

customer services, priority sector lending, and deployment of

credit in rural and backward regions and mobilization of deposits.5

In short, it is said that it is the ability to utilize the available

resources in order to carry out operational activities of the aluminums

industry, which reveal its success failure in providing textile

products to its customers.


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4.5 Concept of Profitability

Profitability is the ability to earn profit from all the activities of an

enterprise. It indicates how well management of an enterprise generates

earnings by using the resources at its disposal. In the other words the

ability to earn profit e.g. profitability, it is composed of two words profit

and ability. The word profit represents the absolute figure of profit but an

absolute figure alone does not give an exact ideas of the adequacy or

otherwise of increase or change in performance as shown in the financial

statement of the enterprise. The word ‘ability’ reflects the power of an

enterprise to earn profits, it is called earning performance. Earnings are

an essential requirement to continue the business. So it can be said that a

healthy enterprise is that which has good profitability. According to

hermenson Edward and salmonson ‘profitability is the relationship of

income to some balance sheet measure which indicates the relative ability

to earn income on assets employed. 6

4.6 Profit and Profitability

Profits are the cream of the business without it may not serve the

purpose .it is true that “profits are the useful intermediate beam towards

which capital should be directed” 2 Weston and Brigham mentioned that “

to the financial management profit is the test of efficiency and a measure

of control to the owners a measure of the worth of their investment, to the

creditors the margin of safety, to the government a measure of taxable


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capacity and a basis of legislative action and the country profit is an index

of economic progress national income generated and the rise in the

standard of living.” 8 While profitability is an outcome of profit. In the

other words no profit derived towards profitability. “It may be remarked

that the profit making ability might denote a constant or improved or

deteriorated stare of affairs during a given period, thus, profit is an

absolute connotation were as profitability is a relative concepts.” 9 Profit

and profitability are two different concepts, although they are closely

related and mutually independent, playing distinct role in business.

R.S.Kulshrestha mentioned that “profit in two separate business concerns

might be the same and yet more often they note their profitability could

differ when measured in terms of the size of investment” 10 as outcome of

above statement it can be said that profitability is broader concept

comparing to the concept of profit levels of profitability helps in

establishing quantitative relationship between profit and level of

investment or sales.

4.7 Measurement Tool of Profitability:

For making policy decision under different situations,

measurement of profitability is essential. According to Murthy V.S. “The

most important measurement of profitability of a company is ratio. E.g.

profitability of assets, variously referred to as earning power of the

company, return on total investment or total resources committed to


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operations. 11 Profitability ratios are calculated to measure the operating

efficiency of the firm. According to Block and Hirt “The income

statement is the major device for measuring the profitability of a firm

over a period of time.” 12 Measurement of profitability is as essential as

the earning of itself for the business concern. Some managerial decision

like rising of additional finance, further expansion, problems of bonus

and dividend payments rest upon this measurement. It can be measured

for a short term and as well as for a ling term. The relation to sales is the

good short-term indication of successful growth while profitability in

relation to investment is the healthier for long growth of the business.

Profitability provides overall performance of a company and useful tool

for forecast measurement of a company’s performance. “The overall

objective of a business is to earn a satisfactory return/profit on the funds

invested in it, while maintaining a sound financial position profitability

measures financial success and efficiency of management. 13

The importance of profitability performance can be seen from the

reality that besides the management and owners of the company, financial

institutions, creditors, bankers also look at its profitability. Appraisal of

performance as regards to profitability can be drawn from interpreting

various ratios. However there are few factors affected to the firm’s

profitability. Each factor in turn will affect the profitability ratio. Diagram


122

No.-4.1, describes factors that affect of different profit ratio and shows

which ratio relates to explain other rations.

Diagram No.-4.1

Factors Affecting to Profitability Ratio

Above figure stated that every factor affected earning power,

directly or indirectly. The reason is one ratio explains to another. In

present study profitability ratios can be measured through two group i.e.

(1) profitability ratios in relation to capital employed, the examples of

sales based profitability ratio are net profit ratio, operation ratio and gross

profit ratio and in relation to capital employed and return on owners

equity of the company will be discussed below:

Production cost

Assets Sales Interest

Asset Turn Over

General Expenses

Selling Price

Return On Equity

Gross Profit Margin

Profit Margin

Return On Investment

Earning Power

Explains Explains

Affects

Affects Explains

Affects


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(I) Profitability ratios in relation to sales

(1) Gross Profit Ratio:

“The excess of the net revenue from sales over the cost of

Merchandise sold is called gross profit, gross profit on sales or gross

margin” 14 this ratio calculated by dividing gross profit by net sales and is

usually expressed as a percentage. The formula of gross profit ratio is

given below:

Gross Profit Ratio = Sales – Cost Of Goods Sold X 100 Sales

The gross profit ratio highlights the efficiency with which

management produces each unit of products as well as it indicates the

average spread between the cost of goods sold and the sales revenue. Any

fluctuation in the gross profit ratio is the result of a change in cost of

goods sold or sales or both. A high gross profit ratio is a mark of

effectiveness of management. The gross profit ratio may increase due to

any of the below factors.

1. Lower cost of goods sold where sales prices remaining constant.

2. Higher sales prices where cost of goods sold remaining constant.

3. An increase in the proportionate volume of higher margin items

4. A combination of variations in sales prices and costs. While in the

case of low profit ratio it may be reflected higher cost of goods sold due

to firm’s inability to purchase at favorable terms, over investment in plant


124

and machinery etc. secondly this ratio will also be low due to a decrease

in price in the market. Table No.5.1 Shows the gross profit ratio of some

selected companies of textile industry in India with the average value.

The gross profit ratio of selected companies of textile industry in

India is given in the Table No.4.1. The table shows the gross profit ratio

of the selected companies of textiles industry.

Table No.:- 4.1

Gross Profit Ratio of selected textiles companies in India

(2002-03to 2007-08) (In percent)

COMPANY

2002-

03 2003-04 2004-05

2005-

06

2006-

07

2007-

08 AVE. S.D. C.V. Min Max

SS M L 4.89 4.51 5.17 6.30 5.70 4.22 5.13 0.77 15.01 4.22 6.30

DGL -1.25 -14.95 -6.88 5.43 -12.03 0.25 -4.91 7.78 -158.53 -14.95 5.43

O S & W ML -2.56 -2.88 -0.49 8.41 3.27 28.07 5.64 11.78 208.98 -2.88 28.07

SDML 8.94 9.00 11.36 20.40 20.91 14.62 14.21 5.41 38.09 8.94 20.91

WIL. 14.75 16.64 16.89 17.31 18.22 14.21 16.34 1.54 9.46 14.21 18.22

S K N L -3.49 -2.77 -57.42 16.35 15.75 18.65 -2.16 28.82 -1337.24 -57.42 18.65

MFTL. 8.91 -26.36 -7.11 9.59 -15.75 14.25 -2.75 16.26 -592.51 -26.36 14.25

AVE. 4.31 -2.40 -5.50 11.97 5.15 13.47 4.50 10.34 -259.53 -10.61 15.98

S.D 6.96 14.56 24.58 5.94 14.53 9.15 8.38 9.82 538.26 24.95 8.07

C.V. 161.44 -606.36 -447.12 49.66 282.05 67.97 186.16 94.98 -207.39 -235.28 50.51

Sources: computed from annual reports of respective companies.


125

Table No.4.1 shows the gross profit ratio in relative terms as

percent of net sales. As regards the, SS M L the gross profit ratio varies

from 4.22 percent to 6.30 percent. It shows the overall fluctuation in the

ratio within the study period. The gross profit ratio of SS M L was

highest in the year 2005-05 the value of the ratio in this year was 6.30.

The lowest value of the ratio was in the year 2007-08. From the year

2002-03 the trend of the ratio is declining. In the year 2004-05 the value

of the above said ratio was 5.17. The average value of the gross profit

ratio of SS M L is 5.13 percent. The standard deviation is 0.77 percent

and co-efficient of variation 15.01 percent which showed high fluctuation

in gross profit ratio during the study period. If so the ratio of the company

is fluctuating during the research study.

The given Table No.4.1 shows the gross profit ratio of the DGL

from 2002-03 to 2007-08. The trend of the ratio is upward and fluctuated

during the study period. The gross profit ratio of the DGL was 4.53

percent in the year 2007-08 which is highest in the year 2006-07. The

average value of the ratio is -4.91 with standard deviation of 7.78 and co-

efficient of variation of 208.98 percent. In the year 2005-06, and 2006-07

the value of the ratio was more than the average value of the ratio which

is good indication for the better development of the company. The

company has not maintained its good gross profit ratio during the study

period.


126

Table No.4.1 expressed the gross profit ratio or the O S & W ML

from 2002-03to 2007-08. The gross profit ratio of the above said

company is very poor and sometimes it shows the near to one percent and

negative only which is the sign of poor management of the company. The

highest ratio of the company was in the year 2007-08 and the value was

28.07. The lowest value of the ratio is minus 2.88 in the year 2003-04. So

this year shows the very critical for the company.


127

Graph No. 4.1Gross profit ratio

-70.00

-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.

years

Rat

io

SS M L DGL O S & W ML SDML WIL. S K N L MFTL.


128

The trend of the ratio is upward from the year 2005-06 but not

satisfactory. The average value of gross profit ratio of above said

company during the study period is 5.64 percent which are once again

poor. The standard deviation has been 11.78 percent and co-efficient of

variation has been 208.98 percent which has shown high fluctuation in

gross profit ratio the O S & W ML.

The above Table No.4.1shows the gross profit ratio of SDML from

the year 2002-03 to 2007-08. The trend of the above ratio is up-ward.

The gross profit ratio of the company is ranged between 8.94 percent in

2002-03 and 20.91 percent in 2007-08 with an average of 14.21. The

standard deviation is 5.41 and co-efficient of variation is 38.09 which

shows high fluctuation in gross profit ratio of SDML. The gross profit

ratio of the company is up to the mark. The company could generate

sufficient sales to earn gross profit and by keeping a very low cost of

goods sold.

The Table No.4.1 indicates that gross profit ratio of WIL. The trend

of the gross profit ratio is fluctuating with an average of 16.34 percent.

The gross ratio is 14.75 percent in 2002-03 which then inclined to 16.64

percent in 2003-04 and rose to 16.89 percent in 2004-05. The ratio is

17.31 percent in 2005-60 and again it went up to 18.22 percent and in

2006-07 in the last to years of the study period the ratio has been 14.21

percent. The standard deviation is 1.54 percent and co-efficient of


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variation is 9.46.The performance of the company is poor because

company could minimize the cost of goods sales.

Table No.4.1 expressed the gross profit ratio or the S K N L from

2002-03 to 2007-08. The gross profit ratio of the above said company is

very poor and sometimes it shows the near to one percent and negative

only which is the sign of poor management of the company. The highest

ratio of the company was in the year 2007-08 and the value was 18.65.

The lowest value of the ratio is minus 57.42 in the year 2004-05. So this

year shows the very critical for the company. The trend of the ratio is

upward from the year 2005-06 but not satisfactory. The average value of

gross profit ratio of above said company during the study period is minus

2.16 percent which are once again poor. The standard deviation has been

28.82 percent and co-efficient of variation has been 1337.24 percent

which has shown high fluctuation in gross profit ratio the S K N L.

The Table No.4.1 indicates that gross profit ratio of MFTL. The

trend of the gross profit ratio is fluctuating with an average of minus 2.75

percent. The gross ratio is 8.91 percent in 2002-03 which then declined to

minus 26.36 percent in 2003-04 and rose to minus 7.11 percent in 2004-

05. The ratio is 9.59 percent in 2005-06 and again it went down to

minus15.75 percent and in 2006-07 in the last to years of the study period

the ratio has been 14.25 percent. The standard deviation is 16.26 percent

and co-efficient of variation is minus 592.51.The performance of the


130

company is poor because company could minimize the cost of goods

sales.

On the basis of above analysis it can be said that the gross profit

ratio of WIL was the highest followed by SDML, O S & W ML, SS M L,

S K N L and MFTL. The MFTL DGL MFTL and S K N L Company

needs to increase sales turnover and try to control cost of goods sold. The

gross profit ratio of DGL was not up to the mark.

Gross Profit Ratio (ANOVA Test)

• Null Hypothesis: There is no any significant difference in Gross

Profit Ratio of textiles units under study.

• Alternative hypothesis: There is significant difference in Gross

Profit Ratio of textiles units under study.

• Level of Significance: 5 percent

• Critical value: 2.48

• Degree of freedom: 41


131

Table No.4.2

Gross Profit Ratio one way ANOVA test

Source of

Variation SS df MS F P-value F crit

Between

Groups 1989.71 5.00 397.94 2.00 0.10 2.48

Within Groups 7169.95 36.00 199.17

Total 9159.66 41.00

Since F critical > F cal (at 5% significance level), the alternative

hypothesis is accepted and null hypothesis is rejected and hence it is

concluded that the Gross Profit ratio does differ significantly.

2 Operating Profit Ratio

This ratio indicates the relationship between operating profit and

net sales in the form of percentage. Operating profit arrived at by

adjusting all non-operating expenses and incomes in net profit in the

other words it can be said profit before depreciation and taxes. A

consistently high ratio tells us the effective and efficient operation of the

business. This ratio helps find out the profit arising out of pure production

process i.e. the main business of production and sales. Thereby reflecting

the effect of other incomes and expenses included in net profit.


132

Operation Profit Operating Profit Ratio = -----------------------x 100

Net Sales

Operation profit = Sales- (Cost of goods sold + operational expenditure)

Table No.:4.3

Operating profit Ratio of Selected textiles companies in India

(2002-03 to 2007-08). (In percent)

COMPANY 2002-03 2003-4 2004-05 2005-06 2006-07 2007-08 AVE. S.D. C.V. Min Max

SS M L 7.87 7.62 8.61 9.39 8.61 6.98 8.18 0.86 10.49 6.98 9.39

DGL 11.23 0.39 4.19 10.45 -5.78 5.38 4.31 6.39 148.17 -5.78 11.23

O S & W ML 4.76 4.30 5.98 14.45 9.22 32.07 11.80 10.62 90.05 4.30 32.07

SDML 14.89 14.24 14.43 25.15 25.61 20.03 19.06 5.35 28.06 14.24 25.61

WIL. 19.40 20.54 22.29 24.20 24.28 20.52 21.87 2.05 9.39 19.40 24.28

S K N L 6.85 7.23 -50.89 20.65 20.14 21.47 4.24 27.84 656.24 -50.89 21.47

MFTL. 15.66 -14.32 3.34 21.65 -11.07 16.21 5.25 15.17 289.20 -14.32 21.65

AVE. 11.52 5.71 1.14 17.99 10.14 17.52 10.67 9.75 175.94 -3.72 20.81

S.D 5.35 11.03 23.89 6.50 14.41 9.15 7.24 9.36 234.04 23.73 8.01

C.V. 46.40 193.05 2103.54 36.14 142.04 52.24 67.84 96.01 133.02 -637.06 38.50

Sources: Annual Reports and Accounts of respective companies.

The above Table No.4.3 shows the operating profit ratio of selected

companies of textiles companies in India the above table shows the

operating profit ratio of SS M L from the year 2002-03 to 2007-08.The

trend of the operating profit ratio of the above said company is fluctuating

during the study. The highest value of the operating profit ratio of above

company was 9.39 in the year 2005-06 and the lowest value of the ratio

was 6.98 in the year 2007-08. The average value of the ratio is 8.18


133

percent with a fluctuating trend. The standard deviation was 0.86 and co-

efficient of variation was 10.49 percent which showed slightly fluctuation

in the gross profit ratio. The ratio of the company is satisfactory.

The above Table No.4.3 shows the operating profit ratio of DGL

from the year 2002-03 to 2007-08. The trend of the operating profit ratio

of the above said company is slow fluctuating and negative in some years

during the study. The highest value of the operating profit ratio of above

company was 11.23 percent in the year 2002-03 and the lowest value of

the ratio was minus 5.78 percent in the year 2006-07. The standard

deviation was 6.39 percent with the average value of the ratio is 4.31

percent. The ratio of the company is not satisfactory.

The above Table No.4.3 shows the operating profit ratio of O S &

W ML from the year 2002-03 to 2007-08. The trend of the operating

profit ratio of the above said company is increasing with an average of

11.80 percent during the study. Operating profit ratio of O S & W ML has

been ranged between 4.30 percent in 2003-04 and 32.07 percent in 2007-

08.The standard deviation of the ratio was 10.62 percent and Co-efficient

of variation was 90.05 percent.

The above Table No.4.3 showed the operating profit ratio of

SDML with highly fluctuated trend. The ratio ranged between 25.61

percent in 2006-07 and 14.24 percent in 2003-04 with an average of

19.06 percent. The operating profit ratio in the 2005-06 and 2006-07 and


134

2007-08 was so good. However, overall operating profit ratio was

satisfactory due to low cost of goods sold. The standard deviation was

5.35 percent and co-efficient of variation was 28.06 percent. The

company should still try to control production expenses to earning better.

The above Table No.4.3 shows the operating profit ratio of

WIl.from the year 2002-03 to 2007-08. The trend of the operating profit

ratio of the above said company is fluctuating during the study. The

highest value of the operating profit ratio of above company was 24.28 in

the year 2006-07 and the lowest value of the ratio was 19.40 in the year

2002-03. The average value of the ratio is 21.87. The standard deviation

was 2.05 percent and 9.39 percent. The ratio of the company is

satisfactory.


135

CgartNo.4.2 operating profit ratio

-50.00

0.00

50.00

100.00

150.00

200.00

SS M L DGL O S & W ML SDML WIL. S K N L MFTL. AVE.

year

Rat

io

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.


136

The above Table No.4.3 shows the operating profit ratio of S K N

L from the year 2002-03 to 2007-08. The trend of the operating profit

ratio of the above said company is slow fluctuating and negative in some

years during the study. The highest value of the operating profit ratio of

above company was 21.47 percent in the year 2007-08 and the lowest

value of the ratio was minus -50.89 percent in the year 2004-05. The

standard deviation was 27.84 percent with the average value of the ratio

is 4.24 percent. The ratio of the company is satisfactory except in the year

of 2004-05.

The above Table No.4.3 shows the operating profit ratio of

MFTL.from the year 2002-03 to 2007-08. The trend of the operating

profit ratio of the above said company is fluctuating during the study. The

highest value of the operating profit ratio of above company was 21.65 in

the year 2005-06 and the lowest value of the ratio was minus 14.32 in the

year 2003-04. The average value of the ratio is 5.25. The standard

deviation was 15.17 percent and 289.20 percent. The ratio of the

company is not satisfactory.

On the basis of above analysis a researcher can conclude that the

operating was very good in WIL. Followed by SDML, SS M L, O S & W

ML DGL and S K N L. Companies like DGL and S K N L have below

average ratio than the group average. These companies need to curb the

operating cost.


137

Operating Profit Ratio (ANOVA Test)

Null Hypothesis:

There is no any significant difference in Operating Profit Ratio

textiles units under study.

Alternative hypothesis:

There is significant difference in Operating Profit Ratio of textiles

units under study.

Level of Significance: 5 percent

• Critical value: 2.48

• Degree of freedom: 41

Table no. 4.4

Operating Profit Ratio (ANOVA Test)

Source of

Variation SS df MS F P-value F crit

Between Groups 1519.213 5 303.84 1.73 0.15 2.48

Within Groups 6328.274 36 175.79

Total 7847.487 41

From the above Table no. 4.4, it is clear that difference in between

groups and within groups was not significant because the calculated value

of ‘F’ (0.144) was lower than the table value of ‘F’ (2.48). Analysis


138

indicates that there were no similarities in operating profit ratio of textiles

units under study.

3. Net Profit Ratio

Net Profit Ratio is obtained when operating expenses, interest and

taxes are deducted from the gross profit. It indicates that the proportions

of sales are left to the proprietors after all costs; charges and expenses

have been deducted.

Net profit Ratio is differing from the operating profit ratio to sales

ratio in as much as it computed after adding non operating surplus/deficit.

(Difference of non operating income and none operating expenses) The

net profit ratio is measured by dividing profit after tax by net sales.

Net Profit Ratio= Profit after tax ------------------ * 100

Net Sales

Net Profit Margin Ratio establishing relationship between net profit

and sales and it indicates management efficiency in administrating,

manufacturing and selling the products. This ratio is the overall measure

of the firm’s ability to turn each rupees sale into net profit. While the net

profit is inadequate, the firm will fail to achieve satisfactory return on

owner’s equity, due to various reasons. Such as (a) falling price (b)

Rising costs and declining sales. 10 Thus, this ratio is very useful to the

proprietors and widely used as a measure of overall profitability.


139

A high net profit ratio would ensure adequate return to the owners as

well as enable a firm to withstand adverse economic conditions when the

selling price declining, the cost of production is rising and demand for the

products is falling. 11

Table No:-4.5

Net Profit Ratio of Selected Textiles Companies in India

(2002-03to 2007-08) (In Percent)

COMPANY

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-


SS M L 2.37 2.27 2.45 3.52 3.76 1.56 2.66 0.83 31.24 1.56 3.76

DGL -18.56 -41.18 -12.66 0.54 -19.62 -6.53 -16.34 14.33 -87.75 -41.18 0.54

O S & W

ML -14.17 -12.41 -8.52 1.09 -4.74 21.96 -2.80 13.31 -475.78 -14.17 21.96

SDML 4.31 4.72 6.65 12.16 12.24 8.38 8.08 3.51 43.45 4.31 12.24

WIL. 6.16 7.98 7.84 5.89 4.86 1.96 5.78 2.22 38.43 1.96 7.98

S K N L -21.63 -3.07 -58.00 10.49 9.96 11.03 -8.54 27.33 -320.16 -58.00 11.03

MFTL. 2.03 -41.67 -21.70 -6.27 -39.05 7.10 -16.59 20.85 -125.66 -41.67 7.10

AVE. -5.64 -11.91 -11.99 3.92 -4.66 6.49 -3.965 10.34 -260.8 -11.99 6.49

S.D 11.95 21.19 23.00 6.30 18.56 8.93 10.15 10.11 200.81 25.58 6.90

C.V. -211.80 -177.94

-

191.77 160.91

-

398.70 137.47

-

256.13 85.85 -156.84

-

121.66 74.79

Sources: Annual Reports and Accounts from 2002-03to 2007-08.

The above Table No.4.5 shows the Net Profit Ratio of the SS M L

from the year 2002-03 to 2007-08. During the 6 years study period

researcher found many things. The trend of the ratio of above said


140

company was fluctuating in downward direction during the study period.

The highest value of the ratio was 3.76 percent in the year 2006-07 and

the lowest value of the ratio was 1.56 in the year 2007-08. The average

value of the Net Profit ratio of above said company was 2.66 during the

study period.

The net profit ratio of DGL was depicted in the Table No.4.5. The

net profit ratio was showing negative trend with an average of

minus16.34 percent. The net profit ratio was minus 18.56 percent in

2002-03 which went down to minus 41.18 percent 2003-04. The ratio was

minus 12.66 percent in 2004-05 which again slightly rose to 0.54 percent

in 2005-06. The ratio was minus 19.62 percent in 2006-07 and minus

6.53 percent in 2007-08.The average ratio has been of minus 16.34

percent with a range of minus 41.18 percent to 0.54 percent the average

ratio was below the industry average which was not considered to be

good ratio. Company should try to minimize production cost. The

standard deviation and coefficient was 14.33 percent and 87.75 Percent

which showed high changes in net profit ratio.

The above Table No.4.5 shows the Net Profit Ratio of the O S &

W ML from the year 2002-03 to 2007-08. During the 6 years study period

researcher founds many things. The trend of the ratio of above said

company was fluctuating during the study period. Up to the year

2002006-07 the trend was fluctuating and negative from the year of 2007-


141

08 year the trend was up ward. The highest value of the ratio was 21.96 in

the year 2007-08 and the lowest value of the ratio was minus 14.17 in the

year 2002-03. The standard deviation and co-efficient were 13.31 percent

and 475.78 percent which showed high changes. The average value of the

Net Profit Ratio of above said company was minus 2.80 during the study

period. The company shows the good performance during the study

period.

The above Table No.4.5 shows the Net Profit Ratio of the SDML

from the year 2002-03 to 2007-08. The ratio showed fluctuating trend

during the study period. The ratio was 4.31 percent which went up to 4.72

percent in 2003-04. The ratio was 6.65 percent in 2004-05 and 12.16

percent in 2005-06. The ratio was 12.24 percent in 2006-07 and than it

went down to 8.38 percent in 2007-08. The ratio was 12.24 percent in

2005-06 which was the ever highest ratio of the company. During the 6

years study period researcher found that standard deviation was 3.51

percent along with co-efficient of variation of 43.45 percent. The net

profit ratio was satisfactory in the company due to minimum

administrative expenses.

The Table No.4.5 showed the net profit ratio of WIL with the

fluctuated trend during the research period. The highest net profit ratio

found 7.98 percent in 2004-05 and the lowest net profit ratio found of

1.96 percent with average of 5.78 percent. The standard deviation and co-


142

efficient were 2.22 percent and 38.43 percent. The company shows the

average performance during the study period.

The net profit ratio of S K N L was depicted in the Table No.4.5.

The net profit ratio was showing negative trend with an average of minus-

8.54 percent. The net profit ratio was minus 21.63 percent in 2002-03

which went up to minus -3.07 percent 2003-04. The ratio was minus -

58.00 percent in 2004-05 which again slightly rose to 10.49 percent in

2005-06. The ratio was 9.96 percent in 2006-07 and minus 6.53 percent

in 2007-08.The average ratio has been of minus -8.54 percent with a

range of minus -58.00 percent to 11.03 percent the average ratio was

below the industry average which was not considered to be good ratio.

Company should try to minimize production cost. The standard deviation

and coefficient was 27.33 percent and -320.16 Percent which showed

high changes in net profit ratio.

The above Table No.4.5 shows the Net Profit Ratio of the MFTL

from the years 2002-03 to 2007-08. During the 6 years study period

researcher found many things. The trend of the ratio of above said

company was fluctuating and negative trend during the study period. The

highest value of the ratio was 7.10 percent in the year 2007-08 and the

lowest value of the ratio was -41.67 in the year 2003-04. The average

value of the Net Profit ratio of above said company was -16.59 during the

study period.


143

Above analysis explains that the SDML has the highest net profit

ratio followed by WIL and SS M L. Other units like DCL, OS & WML

SKNL AND MFTL have witnessed very low net profit ratio therefore

company needs to have control over the expenses


144

rapg No.4.3 Net profit ratio

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.

year

Ratio



145

Net Profit Ratio (ANOVA Test)

Null Hypothesis: There is no any significant difference in Net Profit

Ratio of textiles units under study.

Alternative hypothesis: There is significant difference in Net Profit



Critical value: 2.48

Degree of freedom: 41

Table No.4.6

Net Profit Ratio (ANOVA Test)

ANOVA

Source of

Variation SS df MS F

P-

value

F

crit

Between Groups 2116.353 5 423.27 1.6 0.18 2.48

Within Groups 9507.469 36 264.1

Total 11623.82 41

Table No.4.6 Indicates there is no significant difference in Net

Profit ratio of textiles units under study because the calculated value of

‘F’ is lower than table value so, null hypothesis is accepted and

alternative hypothesis rejected. It can be concluded that there is no high

deviation in the Net Profit ratio of textiles units under study.


146

(II) Profitability in relation to Capital Employed:

(1) Earning Per Share (EPS)

Earning per share is widely used method of measuring profitability of

the common shareholders investment it measures the profit available to

the equity shareholders on per share basis. The earning per share is

calculated by dividing the profit after taxes by total numbers of common

shares outstanding.

Earning Per Share = Profit after Tax -------------------- × 100 Number of Equity Share

The earning per share calculations made over years shows whether

or not the firms earning power on per share basis have changed over that

period. “The earning per share simply shows the profitability of the firm

on a per share basis. It does not reflect how much is paid as dividend and

how much is retained in business but as a profitability index. It is a

valuable and widely used ratio. Thus, the profitability of common

shareholders investment can be measured easily by per share. The given

table shows the Earning per share of selected companies of the textiles

companies

An investor can take a decision on the basis of the trend of Earning

per share for number years. Earning per share has been calculated here in

Rs. Per share basis as the denomination of the face value of shares varies


147

in different companies. Following table shows the analysis of the Earning

per Share. 17

Table No.:4.7

Earning Per Share of selected companies in India from 2002-03 to

2007-08 (In rupees)


SS M L 11.77 13.51 25.90 24.97 21.41 9.93 17.9 7.0 39.2 9.9 25.9

DGL -17.50 -18.99 -6.53 0.14 -3.30 -1.18 -7.9 8.3 -105.7 -19.0 0.1

O S & W ML 0.00 0.00 0.10 0.00 0.00 0.17 0.0 0.1 162.5 0.0 0.2

SDML 34.92 54.24 67.02 163.06 181.62 131.14 105.3 61.4 58.3 34.9 181.6

WIL. 5.9 6.52 6.83 5.68 7.13 3.59 5.9 1.3 21.5 3.6 7.1

S K N L -8.75 -1.24 -13.08 6.45 6.41 8.48 -0.3 9.0 -3114.8 -13.1 8.5

MFTL. -145.66 -151.70 -87.31 -20.60 -130.44 58.61 -79.5 83.4 0.0 -151.7 58.6

AVE. -17.1 -14 -1 25.7 11.8 30.1 5.92 10.34 174.8 -17.1 30.1

S.D 59.1 64.8 46.6 62.0 90.9 49.1 62.1 33.6 1191.0 60.9 65.6

C.V. -346.6 -464.3 -4615.5 241.7 768.2 163.1 -708.9 138.0 -283.7 -315.1 162.9

Source: Annual Reports and Accounts from 2002-03 to 2007-08.

The above Table No.:4.7 showed the Earning per Share of the

selected companies of the textiles companies in India from the year 2002-

03 to 2007-08. Tables No.:4.7 showed EPS of SS M L. The Earning per

share of the SS M L showed highly fluctuated trend during the study

period. The EPS was Rs. 11.77. In 2002-03 which then inclined to Rs.

13.51 in 2003-04.The EPS then went up to 25.90 due to increase in net

profit. The EPS was Rs. 24.97 in 2005-06 and Rs 21.41 In 2006-07 and

the EPS was 9.93 in the last year of study period. The EPS has gone


148

down to Rs. 9.93 due to decrease in net profit. The average EPS was Rs

73.29 which was good enough compare to industry average of Rs 17.90.

The standard deviation was 7.00 percent and Co-efficient was 39.20

percent.

The above Table No.4.7 showed the Earning per share of the DGL

from the year 2002-03 to 2007-08. The EPS trend of the above said

company was fluctuating during the study period. From the year 2002-03

the trend of the EPS is downward. The highest value of EPS was 0.2 in

the year 2007-08 and the lowest value of the EPS was 0.00 in the year

2002-03. The average value of the EPS was -7.9. The overall trend was

not considered satisfactory. The standard deviation was 8.3 percent and

Co-efficient was -105.7 percent.


149

Graph No.4.4 EPS

-150.00

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

250.00

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.

year

ratio



150

The above Table No.:4.7 showed the Earning per share of the O S

& W ML from the year 2002-03 to 2007-08.The EPS trend of the above

said company was fluctuating during the study period. From the year

2003-04 the trend of the EPS is upward. The highest value of EPS was

0.2 in the year 2007-08 and the lowest value of the EPS was 0.0 in the

year2002-03, 2003-04, 2004-05, 2005-06 and 2006-07. The average value

of the EPS was 0.0 with the standard deviation was 0.1 percent and Co-

efficient was 162.5 percent. The overall trend was considered

satisfactory.

The above Table No.:4.7 showed the Earning per share of the

SDML from the year 2002-03 to 2007-08. The EPS trend of the above

said company was fluctuating during the study period with an average of

Rs. 105.3. The highest value of EPS was 181.6 in the year 2006-07 and

the lowest value of the EPS was 34.9 in 2002-03. The average value of

the EPS was 105.3.The standard deviation was 61.4 and coefficient of

variance was 58.3 percent.


WIL from the year 2002-03 to 2007-08.The EPS trend of the above said

company was fluctuating during the study period. From the year 2003-04

the trend of the EPS is downward. The highest value of EPS was 7.1 in

the year 2007-08 and the lowest value of the EPS was 3.6 in the 2007-08.

The average value of the EPS was 5.9 with the standard deviation was 1.3


151

percent and Co-efficient was 21.5 percent. The overall trend was

considered satisfactory.

The above Table No.:4.7 showed the Earning per share of the S K

N L from the year 2002-03 to 2007-08. The EPS trend of the above said

company was fluctuating and negative during the study period with an

average of Rs. -0.3. The highest value of EPS was 8.5 in the year 2007-08

and the lowest value of the EPS was -13.1 in 2004-05. The average value

of the EPS was -0.3.The standard deviation was 9.0 and coefficient of

variance was 3114.8 percent.


MFTL .from the year 2002-03 to 2007-08.The EPS trend of the above

said company was fluctuating during the study period. From the year

2002-05 the trend of the EPS is downward. The highest value of EPS was

58.6 in the year 2007-08 and the lowest value of the EPS was -151.7 in

the 2003-04. The average value of the EPS was -79.5 with the standard

deviation were 83.4 percent and Co-efficient was 0.0 percent. The overall

trend was not considered satisfactory.

On the basis of EPS analysis of industry, a researcher has concluded

that the performance of EPS was the best of SDML (105.3) followed by

SS M L. and WIL. But companies like O S & W ML, and S K N L need

to increase ESP. These companies could not have better control over

administrative expenses.


152

Earning per share (ANOVA Test)

Null Hypothesis:

There is no any significant difference in earning per share of textiles units

under study.


There is significant difference in earning per share of textiles units under

study.


Critical value: 248


Table No.4.8

Earning per share (ANOVA Test)

Source of


P-

value

F

crit

Between

Groups 13864.76 5 2773 0.68 0.64 2.48

Within Groups 146326.4 36 4064.6

Total 160191.1 41

Table No.4.8 Indicates there insignificant difference in earning per

share of textile units under study because the calculated value of ‘F’ is


153

lower than table value so, null hypothesis is accepted and alternative

hypothesis rejected. It can be concluded that there is no high deviation in

the Earning per share of textiles units under study.

2. Return on Capital Employed.

In day to day use the term “capital employed’ is used to indicate the

total investment in the firm whether owners or borrowed. 18 But the

capital employed in a firm may be defined in a number of ways and the

two most widely accepted definitions are Gross Capital Employed and

Net Capital Employed. Gross Capital Employed usually comprises the

total assets used in the business while net capital employed consists of the

total assets of the business less its current liabilities.

(II) Return on Gross Capital Employed

On the ground that the current liabilities are also a form of capital

and all funds must be effectively employed. The Gross Capital Employed

concept may be favoured by the analyses. Thus;

Gross Capital Employed = Fixed Assets+ Current Assets

It may be noted that the total of fixed assets and current assets does

not necessarily represents total assets or total liabilities of a company.

(III) Net Capital Employed

On the ground that further either only short term creditors or only

short term debtors should be included in the capital employed. The net

capital employed concept may be favored.


154

Net Capital Employed= Gross capital employed-Current liabilities

OR

Net Capital Employed= Fixed assets- Net working capital

(i) Return on gross capital employed:-

As defined earlier gross capital employed is that total of fixed

assets and current assets. Alternatively, it is the quantum of liabilities plus

shareholders equity. The numerator, i.e. net profit before interest and

taxes has been taken for computing this ratio.

Table No:-4.9

The return on gross capital employed ratio of selected textiles companies in India (2002-03 to 2007-08) (in percent)


SS M L 9.89 8.78 9.79 15.84 16.18 10.78 11.88 3.27 27.50 8.78 16.18

DGL -0.65 -10.68 -6.92 0.66 -9.47 0.29 -4.46 5.16 -115.65 -10.68 0.66

O S & W ML -2.36 -3.03 -0.64 17.17 5.92 109.50 21.09 43.97 208.44 -3.03 109.50

SDML 10.68 11.56 12.50 20.99 19.94 13.01 14.78 4.49 30.36 10.68 20.99

WIL. 13.01 17.63 13.89 12.31 13.85 11.01 13.62 2.24 16.46 11.01 17.63

S K N L -2.23 -1.71 -22.50 18.28 17.62 20.98 5.07 17.00 335.03 -22.50 20.98

MFTL. 499.38 0.00 0.00 0.00 0.00 53.27 92.11 200.66 217.85 0.00 499.38

AVE. 75.39 3.22 0.87 12.18 9.15 31.26 22.01 10.34 47.0 0.87 75.39

S.D 187.08 9.79 12.87 8.51 10.81 38.37 31.96 72.58 155.15 12.50 180.61

C.V. 248.15 303.90 1472.36 69.85 118.11 122.73 145.18 183.55 150.84 -1524.11 184.48

Sources: Annual Reports and Accounts from 2002-03 to 2007-08.

The Above Table No.4.9 showed return on gross capital

employed of SS M L the trend of this ratio was decreasing during the


155

research period. The standard deviation was 3.27 percent with an average

of 11.88 percent. The return on gross capital employed was 9.89 percent

in 2002-03 and 9.79 percent in 2004-05. The ratio rose to 15.84 percent in

2005-06 and reached at the level of 10.78 percent in 2007-08. The ratio

ranged between 8.78 percent in 2003-04 and 16.18 percent in 2006-07.

The return on capital employed is good in this unit.

The return on gross capital employed of DGL was shown in the

above Table No.4.9.The ratio ranged between minus 10.68 percent in

2003-04 and 0.66 percent in 2005-06.The average ratio was minus 4.46

percent with a standard deviation of 5.16 percent. The ratio was minus

0.65 in 2002-03 and minus 10.68 in 2003-04. Then it rose to -6.92 in

2004-05 and 0.66 in 2005-06. The ratio of company was not satisfactory.

The company needed to increase to earning potentiality.

The above Table No.4.9 showed return on gross capital employed

of O S & W ML. The ratio showed very fluctuating trend with an average

of 21.09 percent during the study period. The ratio was -2.36 percent in

2002-03 and slipped to -3.03 percent in 2003-04. The ratio was -0.64

percent in 2004-05 and 17.17 percent in 2005-06 .The after it rose and

reached to the highest level of 109.50 percent in 2007-08. The ratio was

very good in the last two years of study period. The standard deviation

was 43.97 percent and co-efficient of variation was 208.44 percent.


156

The above Table No.4.9 shows the gross capital employed ratio of

SDML from 2002-03 to 2007-08. The trend of the above said ratio was

mixed during the study period. The ratio showed fluctuating trend during

the research period. The ratio was 10.68 percent in 2002-03 and 11.56


percent in 2005-06. The ratio was again went down to 19.94 percent The


lowest value of the ratio was 10.68 percent the year 2002-03 . The

average value of the ratio was 14.78 with a standard deviation of 4.49

percent co-efficient of variation of 30.36. The overall position was good.


WIL from 2002-03 to 2007-08. The trend of the above said ratio was

mixed and fluctuating during the study period. The trend was upward up

to the year 2003-04 than it declines up to the year 2004-05 further it

increases till the2006-07. The highest value of the ratio was 20.98 in the

year 2007-08 and the lowest value of the ratio was -22.50 in the year

2004-05. The average value of the ratio was 13.62 which were higher

than the industry average. The standard deviation was 17.00 percent and

co-efficient of variation of 16.46 percent. The ratio was as good as it

should be for these types of industry.

The above Table No.4.9 showed return on gross capital employed

of S K N L. The ratio showed very fluctuating trend with an average of


157

5.07 percent during the study period. The ratio was --2.23 percent in

2002-03 and slipped to -1.71 percent in 2003-04. The ratio was -22.50

percent in 2004-05 and 18.28 percent in 2005-06 .The after it rose and

reached to the highest level of 20.98 percent in 2007-08. The ratio was

very good in the last three years of study period. The standard deviation

was 17.00 percent and co-efficient of variation was 335.03percent.


MFTL from 2002-03 to 2007-08. The trend of the above said ratio was

mixed during the study period. The ratio showed fluctuating trend during

the research period. The ratio was 499.38 percent in 2002-03 and 0.00


percent in 2005-06. The ratio was again went down to 0.00 percent The


lowest value of the ratio was 0.00 percent the year 2002-03,2003-

04,2004-05 and 2006-07.The average value of the ratio was 92.11 with a

standard deviation of 200.66 percent co-efficient of variation of 217.85.

The overall position was good.

On the basis of above analysis it van be said that the MFTL could

earn highest return on gross capital employed followed by O S & W ML,

SDML, WIL and S K N L. .The performance of DGL and S K N L was

below average than industry average.

Return on Gross Capital Employed Ratio (ANOVA Test)


158

Null Hypothesis:

There is no any significant difference in Return on Gross Capital

Employed Ratio of textiles units under study.


There is significant difference in Return on Gross Capital






159

GRAPH NO.4.5 RETURN ON GROSS CAPITAL EMPLOYED

-100.00

0.00

100.00

200.00

300.00

400.00

500.00

600.00

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.

year

ratio



160

Table no.4.10

Return on Gross Capital Employed Ratio (ANOVA Test)

Source of


P-

value

F

crit

Between

Groups 27976.83 5 5595.4 0.91 0.49 2.48

Within Groups 221525.8 36 6153.5

Total 249502.6 41

From the above Table no.4.10, it is clear that difference in between

groups and within groups was not significant because the calculated value

of ‘F’ (0.234) was lower than the table value of ‘F’ (2.45). Analysis

indicates that there were similarities in Return on Gross Capital


(II) Return on Net Capital Employed

Net Capital Employed is the total of fixed assets plus current assets

minus current liabilities. Alternatively, it is the quantum of permanent

capital e.g. Non current liabilities plus shareholder’s equity. The

numerator, e.g. Net profit before interest and taxes but after depreciation

has been taken for computing this ratio.


161

Return on Net Capital Employed = Net Profit before interest and taxes ----------------------------------------- × 100 Net Capital Employed

This ratio is the best of overall profitability and efficiency of the

business firm. A company with high rate of return on capital employed

will be in a position to capitalise; e.g. it can take advantage of all

favourable market opportunities.

Table no.4.11

The Return on net capital employed ratio of selected textiles companies in India from 2002-03 to 2007-08. (in percent)

COMPANY

2002-

03 2003-04 2004-05

2005-

06 2006-07

2007-


SS M L 4.79 4.42 4.65 8.84 10.69 3.98 6.23 2.81 45.19 3.98 10.69

DGL -9.57 -29.42 -12.73 0.07 -15.44 -7.53 -12.44 9.86 -79.29 -29.42 0.07

O S & W ML -13.06 -13.03 -11.20 2.23 -8.58 85.68 7.01 38.96 556.10 -13.06 85.68

SDML 5.15 6.06 7.32 12.51 11.67 7.46 8.36 3.02 36.14 5.15 12.51

WIL. 5.43 8.45 6.44 4.19 3.69 1.52 4.95 2.39 48.31 1.52 8.45

S K N L -13.78 -1.90 -22.73 11.73 11.15 12.41 -0.52 15.00 -2883.91 -22.73 12.41

MFTL. 113.85 0.00 0.00 0.00 0.00 26.54 23.40 45.57 194.74 0.00 113.85

AVE. 13.26 -3.63 -4.04 5.65 1.88 18.58 5.28 10.34 195.7 -4.04 18.58

S.D 45.21 13.38 11.60 5.34 10.61 31.39 10.72 18.09 1158.76 13.98 45.31

C.V. 340.97 -368.47 -287.34 94.46 563.57 168.97 202.82 107.65 -389.46 -179.33 130.17

Source: Annual Reports and Accounts from 2002-03 to 2007-08.


162

GRAPH NO.4.6 RETURN ON NET CAPITAL EMPLOYED

-50.00

0.00

50.00

100.00

150.00

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.

year

Rat

io



163

Table No. 4.11 showed return on net capital employed of SS M L.

The ratio showed fluctuating and upward trend during the study period.

The ratio was 4.79 percent in 2002-03 and 8.84 percent in 2005-06. The

ratio gain rose to 10.69 percent in 2006-07 and it was reached at the

bottom level of 3.98 percent in 2007-08 with an average of 6.23 percent.

The standard deviation was 2.81 percent and co-efficient of variation was

45.19 percent

Table No. 4.11 depicted the return on net capital employed of

DGL.The ratio showed decreasing trend from 2002-03 to 2007-08. The

ratio was -9.57 percent in 2002-03 and then it went down to -29.42

percent in 2003-04. The ratio again increased to -12.73 percent in 2004-

05 which very low and 0.07 percent in 2005-06. The ratio then after

marginally declined and reached at bottom level to minus -15.44 percent

in 2006-07. The ratio ranged between minus 0.07 percent in -29.42

percent in 2003-04 with an average of -12.44 percent. The standard

deviation was 9.86percent and co-efficient of variation was -79.29

percent.

Table No. 4.11 showed return on net capital employed of O S & W

ML with an average of 7.01 percent. The ratio was 13.06 percent in 2002-

03 and then it declined to -13.03 percent in 2003-04. The ratio was -11.20

percent in 2004-05 and it went up to 2.23 percent in 2005-06. The ratio

was showing increasing trend from 2006-07 to 2007-08.The ratio was not


164

showing progressive trend during the study period. The ratio was not very

good and company’s earning capacity was not good.

Return on net capital employed of SDML was manifested in Table

No. 4.11. The average ratio was 8.36 percent with fluctuating trend

during the study period. The ratio was 5.15 percent in 2002-03 which rose

to 6.06 percent in 2003-04 and then it went up to 7.32 percent in 2004-05.

The ratio has been slightly fluctuated and went up to 12.51 percent and

11.67 percent in 2005-06 and 2007-08 respectively. The standard

deviation was 3.02 percent and co-efficient of variation was 36.14

percent. The ratio ranged between 12.51 percent in 2005-06 and 5.15

percent in 2002-03.

Table No. 4.11 expressed the return on net capital employed of

WIL. Was 5.43 percent in 2002-03 which was 8.45 percent in 2003-

04.The ratio slipped to 6.44 percent in 2004-05 the ratio was decreased to

3.69 percent in 2006-07. The ratio was 1.52 percent in 2007-08 and then

due to control over expenses. The ratio was very in the last year of study

period. The return on net capital employed was very good in this

company. The standard deviation was 2.39 percent and co-efficient of

variation was 48.31 percent.

Table No. 4.11 showed return on net capital employed of S K N L

The ratio showed fluctuating and upward trend during the study period.

The ratio was -13.78 percent in 2002-03 and 11.73 percent in 2005-06.


165

The ratio gain rose to 11.15 percent in 2006-07 and it was reached at the

level of 12.41 percent in 2007-08 with an average of -0.52 percent. The

standard deviation was 15.00 percent and co-efficient of variation was -

2883.91 percent.

Return on net capital employed of MFTL was manifested in Table

No. 4.11. The average ratio was 23.40 percent with fluctuating trend

during the study period. The ratio was 113.85 percent in 2002-03 which

rose to 0.00 percent in 2003-04 and then it went up to 0.00 percent in

2004-05. The ratio has been slightly fluctuated and went up to 0.00

percent and 0.00 percent in 2005-06 and 2007-08 respectively. The

standard deviation was 45.57 percent and co-efficient of variation was

194.74 percent. The ratio ranged between 0.00 percent in 2003-04 and

113.85 percent in 2002-03.

On the basis of analysis the return on net capital was found highest

of 8.36 percent in SDML and the lowest return on net capital employed

was found of -12.44 percent in DGL. The Return on net capital employed

was below industry average of WIL, DGL and S K N L

Return on Net Capital Employed Ratio (ANOVA Test)

Null Hypothesis:

There is no any significant difference in Return on Net Capital



166


There is significant difference in Return on Net Capital Employed





Table no.4.12

Return on Net Capital Employed Ratio (ANOVA Test)

Source of


P-

value

F

crit

Between

Groups 2928.962 5 585.79 1.01 0.43 2.48

Within Groups 20903.49 36 580.65

Total 23832.46 41

Table No.4.12 showed the F calculated value > F critical (at 5%

significance level), the null hypothesis is accepted and alternative

hypothesis is rejected and hence it is concluded that the Return on Net

Capital Employed ratio of textiles companies does not differ significantly.

(3) Return on Net Worth:-

Return on net worth is also known as return on shareholders equity.

This ratio shows how the firm will have used the resources of owners. It


167

may true that this ratio is one of the most relationship in financial

analysis. This retun on owner’s equity is calculated by following formula:

Net Profit after Taxes and Interest Return on Net Worth = -------------------------------------------- x 100 Net Worth

Where, owner’s equity = share capital + reserve & surplus.

This ratio indicated the extent to which this objective has been

fulfilled. This, ratio reflects great interest to present as well as prospective

shareholders and also important for management, because management

has responsibility of maximizing the owners wealth the market place.

This ratio would be compared with the ratios for other similar

companies as well as the industry average. Thus, it shows the relative

performance and strength of the company.


168

Table no.4.13

The Return on net worth ratio of textiles companies in India

(2002-03 to 2007-08) (in percent)

COMPANY

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-


SS M L 8.4 7.5 8.2 14.5 16.0 6.9 10.3 3.9 38.2 6.9 16.0

DGL -46.0 -935.1 0.0 0.0 0.0 0.0 -163.5 378.4 -231.4 -935.1 0.0

O S & W ML 0.0 0.0 0.0 0.0 0.0 930.2 155.0 379.7 244.9 0.0 930.2

SDML 6.1 7.0 9.3 17.2 15.8 10.0 10.9 4.6 42.4 6.1 17.2

WIL. 9.5 13.7 12.9 9.1 9.6 4.8 9.9 3.2 32.0 4.8 13.7

S K N L -40.9 -6.0 -105.9 45.3 26.7 23.9 -9.5 56.1 -591.3 -105.9 45.3

MFTL. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

AVE. -9 -130.4 -10.8 12.3 9.7 139.4 1.87 10.34 553.9 -130.4 139.4

S.D 23.9 354.9 42.3 16.2 10.4 348.8 92.3 179.4 269.7 350.3 346.1

C.V. -265.5 -272.1 -391.5 132.0 106.8 250.2 4944.8 152.1 -406.0 -239.6 237.0

Sources: Annual Reports and Accounts from 2002-03 to 2007-08.

The above Table No. 4.13 showed the ratio of rerun on net worth

of SS M L which also indicated fluctuated trend with an average of 10.3

percent. The highest ratio had been found of 16.0 percent in 2006-07and

the lowest ratio had also been found of 6.9 percent in 2007-08. The

standard deviation was 3.9 percent with co-efficient of 38.2 percent. The

ratio was quite satisfactory.

The ratio of return on net worth of DGL was seen in above Table

No. 4.13. The ratio explained the negative trend with an average of -

163.5. The ratio was -46.0 percent in 2002-03 and rose to -935.1 percent


169

in 2003-04. The ratio slipped to 0.0 percent from 2003-04 to 2007-08.

The ratio was highly fluctuated and went down to minus to -935.1 percent

in 2003-04 and minus 0.00 percent in 2003-04, 2004-05, 2005-06and

2006-07. The ratio was ranged between 0.00 percent and -935.10 percent

during the study period. The ratio showed standard deviation of 378.4

percent and co-efficient of variation of -231.4. The company had shown

bad performance in the last four years.

The above Table No. 4.13 showed Return on net worth of O S &

W ML. The ratio showed fluctuated and progressive trend with an

average of 155.00 percent. The return on net worth ratio ranged between

0.00 percent and 930.2. The standard deviation was 379.7 percent and co-

efficient of variation was 244.9 percent. The average ratio was above

average of industry.

The above Table No. 4.13 showed return on net worth of NAC

with increased trend. The average ratio was 23.53 percent which was the

best. The ratio was 19.37 percent in 2000-01 but it was lightly declined to

14.79 percent in 2001-02. The ratio again indicated growth and reached

to 20.87 percent in 2003-04. The ratio was 29.21 percent in 2004-05 and

29.50 percent in 2005-06. The ratio again increased to previous year to

35.05 percent in 2005-06.The standard deviation was 7.74 percent and

co-efficient of variation was 32.87 percent. The average ratio was above

average of industry.


170

The above Table No. 4.13 indicated the return on net worth of

BAC with an average of 11.25 percent. The ratio showed positive trend

during the study period. The ratio was 0.00 percent in 2000-01 and the

after it showed high of 2.99 percent in 2001-02 and 9.87 percent in 2002-

03 the ratio again found increased to 16.91 percent in 2003-04. The ratio

was 14.23 percent in 2005-06. The was the highest of 18.24 percent in

2006-07. The ratio had been on an average of 11.25 percent with standard

deviation of 7.24 percent. The coefficient variation was 64.32 percent

which showed business risk involved in the company.

An analysis indicates that the highest ratio of return on net worth

was found in MAC followed by NAC, BAC, and IIC. The companies like

IIC, BAC, and NAC need to increase net profit in order to increase return

on net worth.


171

-1000.0

-800.0

-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

800.0

1000.0

ratio

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AVE.year

GRAPH NO. 4.7 RETURN ON NET-WORTH



172

Return on Net worth Ratio (ANOVA Test)

Null Hypothesis: There is no any significant difference in Return on Net

worth Ratio of textiles units under study.

Alternative hypothesis: There is significant difference in Return on Net

worth Ratio of textiles units under study.




Table no.4.14

Return on Net worth Ratio (ANOVA Test)

Source of


P-

value

F

crit

Between

Groups 258025.9 5 51605 1.24 0.31 2.48

Within Groups 1501906 36 41720

Total 1759932 41

Table no.4.14 indicates there was significant difference in Return on

Net worth Ratio of textiles units under study because the calculated value

of ‘F’ was lower than table value so, null hypothesis is accepted and

alternative hypothesis rejected. It can be concluded that in Return on Net

worth Ratio of textiles units under study are not deviated.


173

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3. Ibid. p. 25.

4. Carl L. Moore, et al., Managerial Accounting (London, E.

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5. Robert H. Wessel; Principles of Financial Analysis (N.

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174

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11. MURTHY V.S. “Management finance” Vakils Feller and

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12. BLOCK AND HIRT “Foundations of financial

management” Richard D Irwin inc., Homewood, Illinois,

1978,p.24

13. DAVE N. V. “Industrial sickness and some key areas of

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14. PHILIP E.FESS AND CARL S. WARREN “Financial

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16. KHAN, M.Y. AND JAIN P.K., “Financial management”,

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chapter-4 analysis of financial efficiency 4.1 concept of

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